Larger transfers made after freeze/rate drop are indicated in (-) after the names and amounts
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Frederick Damron - $443,484.00 (Kentucky) http://download.yousendit.com/B4EF45F669C9F4BB
UNITED STATES BANKRUPTCY COURTNORTHERN DISTRICT OF GEORGIAATLANTA DIVISIONIn re: CEP HOLDINGS, INC.,
Debtor.
______________________________________
CEP HOLDINGS, INC., et al.,
Plaintiffs,
v.
FREDERICK DAMRON,
Defendant.
Case No. 07-71810
Chapter 11
Judge Massey
Jointly Administered
Adversary Proceeding
No. 07-____________
COMPLAINT TO AVOID AND RECOVER TRANSFERS
COME NOW, CEP Holdings, Inc. (“Holdings”) and Colon End Parenthesis Trust, LLC (“Trust,” and together with Holdings, the “Debtors”), and file this Complaint to Avoid and Recover Transfers, alleging as follows:
JURISDICTION AND VENUE
1. The Debtors filed voluntary petitions in bankruptcy under chapter 11 of the United States Bankruptcy Code (11 U.S.C. §§ 101, et seq.) on July 27, 2007 (the “Petition Date”). An order was entered on August 3, 2007 to have their cases jointly administered. This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(F), (H) and (O).
2. Venue of this adversary proceeding is proper in this district pursuant to 28 U.S.C. § 1409.
THE PARTIES
3. On July 9, 2007, the Securities and Exchange Commission (the “SEC”) filed its Complaint for Injunctive and Other Relief in the United States District Court for the Eastern District of North Carolina, Raleigh Division (the “District Court”), commencing the lawsuit styled Securities and Exchange Commission v. CEP Holdings, Inc., d/b/a colonendparenthesis.net, Trevor Reed, Clayton Kimbrell and Colon End Parenthesis Trust, LLC, Case No. 5:07-cv-00256-BO (the “SEC Action”). On July 10, 2007, the District Court entered the Order Granting Preliminary Injunction, Freezing Assets, Appointing a Receiver and Ordering Other Ancillary Relief (the “District Court Order”), to which Order the Defendants consented and the Debtors’ businesses were shut down. William F. Perkins was appointed receiver for the Debtors pursuant to the District Court Order and has since managed the Debtors’ assets and financial affairs.
4. The SEC has alleged that Trevor Reed (“Reed”) and Clayton Kimbrell (“Kimbrell”), through Holdings, were involved in a fraudulent and unregistered offering of securities sold via the internet.
5. Upon information and belief, since May 2006, over $16,000,000 has flowed into the bank accounts of Trust from more than 10,000 participants in one of the three “investment” programs operated by Holding’s d/b/a websites. Trust served as an internet payment processor
through which the Debtors’ participants received and disbursed money.
6. Upon information and belief, Holding’s “investment” programs included the following:
(a) a passive, interest-only investment format at colonendparenthesis.net. This program required a minimum initial investment of $20 and promised a daily return of 2% (more than 600% per annum) that was payable every thirty days by credit to the participant’s account at Trust. The participant committed to either a 180-day or 360-day option, but the original principal was not returned to the participant.
(b) investment autosurf websites generally known as CEPCoast.com and Coastin88.com. These programs were functionally identical, but had different financial restrictions and payout amounts. Participants purchased advertising packages, or “Ad Packs” at $5.00 each, which allowed the participant to place his website into a pool of websites that would be viewed and rated on a scale of one to five. If a participant purchased an Ad Pack, he or she then chose to either participate in the program offered at CEPCoast.com or Coastin88.com and was, thereafter, eligible to recover some of his or her costs, or even make a profit, by viewing and rating 15 websites--no more, no less--each day. For CEPCoast.com, 90% of each day’s revenue from purchases of Ad Packs was split pro-ratably among the participants who viewed websites that day, which participants could receive back as much as 130% of the cost of their Ad Packs. For Coastin88.com, 88% of each day’s revenue from purchases of Ad Packs was split pro-ratably among the participants who viewed websites that day, which participants could receive back as much as 115% of the cost of their Ad Packs. The caveats of these auto-surf programs were: (i) only participants who purchased Ad Packs were eligible to view and rate websites in order to earn credits, (ii) to share in a daily payout, the participant had to review all 15 websites sent to him or her that day, (iii) CEPCoast.com paid out 90% and Coastin88.com paid out 88% of daily Ad Pack purchases in their respective programs, and (iv) the payout to viewers each day was dependent on the amount of Ad Packs sales on that day (cash inflow), not on the number of websites viewed and rated by participants.
7. Upon information and belief, investors were led to believe that their funds were used to invest in safe “brick and mortar” type businesses that produced the promised yields, but there was, in fact, no significant investment of participant funds in any third-party business or investment other than a money market account yielding approximately 4%. Neither Reed nor Kimbrell invested personal funds in the programs described above.
8. Upon information and belief, (a) there was no review or audit of the financial transactions of the Debtors and (b) their records consist almost entirely of databases created by website transactions.
9. Several millions of dollars were transferred out of the Debtors’ accounts to Reed, Kimbrell, their family, as well as to employees and sub-contractors, for which it is believed that the Debtors did not receive reasonably equivalent value.
10. The Debtors had no source of funding for the profits paid to participants in these schemes other than the deposits of subsequent investors. It appears that more than 4,000 investors are still owed more than $9,000,000 of the money they initially invested in the Debtors.
11. Defendant Frederick Damron is a resident of Kentucky.
12. Defendant may be served with process in this adversary proceeding by mailing a copy of the summons and a copy of this Complaint by first class United States mail, postage prepaid, to his attention at 130 South Cold Springs Road, Olive Hill, Kentucky 41164, or by such other means as may be permitted by Rule 7004 of the Federal Rules of Bankruptcy Procedure.
THE AVOIDABLE TRANSFERS
13. Defendant participated in one or more programs offered by the Debtors as described in paragraph 6 above.
14. Attached hereto as Exhibit A is an itemization of the transfers from the Debtors to Defendant by date and amount of each transfer, which transfers totaled $443,484.00 (the “Transfers”).
15. During the operation of the Debtors’ scheme as set out in paragraphs 4 through 10 (the “Scheme”), various investors, including Defendant, were paid funds by the Debtors that purported to be (a) redemptions of funds invested or (b) profits made on principal funds invested.
The source of these payments, including those to Defendant, was the principal investments of other investors. The payments to investors were made by the Debtors generally in furtherance of the Scheme. The fraudulent nature of the transfers, including those to the Defendant, was concealed. It is not fair for those investors who received such payments, including Defendant, to keep those payments to the detriment of the remaining creditors and investors who have not been paid and whose investments were used to pay other investors, including Defendant.
16. The Debtors contend that all transfers, in whatever form, made to Defendant by the Debtors are avoidable and recoverable by the Debtors. Defendant is on notice that the Debtors are seeking avoidance and recovery of all transfers from the Debtors to them, even if such transfers are not listed on the attached exhibit, and even if the total amount of these transfers exceeds the amounts set forth on the attached exhibit.
COUNT I
AVOIDANCE AND RECOVERY OF THE TRANSFERS PURSUANT
TO §§ 548(a)(1)(A) AND 550(a)(1) OF THE BANKRUPTCY CODE
17. Plaintiff incorporates by reference paragraphs 1 through 16 above as if fully set forth in Count I herein.
18. The Transfers were transfers of interests in property of the Debtors.
19. The Transfers were made in furtherance of the Scheme.
20. The Transfers were made with actual intent to hinder, delay or defraud the creditors of the Debtors to which the Debtors were or became indebted on or after the dates that the Transfers were made.
21. The Transfers are avoidable pursuant to § 548(a)(1)(A) of the Bankruptcy Code and are recoverable by the Debtors from Defendant pursuant to § 550(a)(1) of the Bankruptcy Code.
COUNT II
AVOIDANCE AND RECOVERY OF THE TRANSFERS PURSUANT
TO §§ 548(a)(1)(B) AND 550(a)(1) OF THE BANKRUPTCY CODE
22. Plaintiff incorporates by reference paragraphs 1 through 21 above as if fully set
forth in Count II herein.
23. The Transfers were transfers of interests in property of the Debtors.
24. The Debtors received less than reasonably equivalent value in exchange for each of the Transfers.
25. The Debtors were insolvent at the times that the Transfers were made or became insolvent as a result of each of the Transfers.
26. At the times of the Transfers, the Debtors were engaged in business or a transaction, or were about to engage in business or a transaction, for which any property remaining with the Debtors was unreasonably small capital.
27. At the times of the Transfers, the Debtors intended to incur, or believed that the Debtors would incur, debts that would be beyond the ability of the Debtors to pay as such debts matured.
28. The Transfers are avoidable pursuant to § 548(a)(1)(B) of the Bankruptcy Code and are recoverable by the Debtors from Defendant pursuant to § 550(a)(1) of the Bankruptcy Code.
COUNT III
AVOIDANCE AND RECOVERY OF THE PREFERENTIAL TRANSFERS
PURSUANT TO §§ 547(b) AND 550(a)(1) OF THE BANKRUPTCY CODE
29. Plaintiff incorporates by reference paragraphs 1 through 28 as if fully set forth in Count III herein.
30. The transfers made to Defendant by the Debtors within 90 days prior to the Petition Date (April 28, 2007 through July 27, 2007) total $109,015.00 (the “Preferential Transfers”).
31. In the event that Defendant was, at the time the Preferential Transfers were made, a creditor of one or more of the Debtors:
(a) The Preferential Transfers were made within 90 days of the Petition Date and were transfers of interests in property of the Debtors;
(b) The Preferential Transfers were made to or for the benefit of Defendant, a creditor of one or more of the Debtors;
(c) The Preferential Transfers were made for or on account of an antecedent debt owed by one or more of the Debtors to Defendant before the Preferential Transfers were made;
(d) The Preferential Transfers were made while the Debtors were insolvent within the meaning of § 547 and § 101(32) of the Bankruptcy Code;
(e) The Preferential Transfers enabled Defendant to receive more than he would have received if the bankruptcy cases of the Debtors were cases under chapter 7 of the Bankruptcy Code, the Preferential Transfers had not been made, and Defendant received payment of his debt to the extent provided by the provisions of the Bankruptcy Code; and
(f) The Preferential Transfers constitute avoidable preferential transfers pursuant to the provisions of § 547(b) of the Bankruptcy Code and are recoverable by the Debtors from Defendant pursuant to § 550(a)(1) of the Bankruptcy Code.
REQUESTED RELIEF
WHEREFORE, the Debtors pray that the Court will enter judgment in their favor as follows:
a. Pursuant to Counts I and II, avoiding the Transfers pursuant to §§ 548(a)(1)(A) or 548(a)(1)(B) of the Bankruptcy Code and, pursuant to § 550(a)(1) of the Bankruptcy Code, against Defendant in the amount of the Transfers, but not less than $443,484.00, together with prejudgment interest thereon at the legal rate allowed under 28 U.S.C. § 1961 from the date hereof;
b. Pursuant to Count III, avoiding the Preferential Transfers pursuant to § 547(b) of the Bankruptcy Code and, pursuant to § 550(a)(1) of the Bankruptcy Code, against Defendant in the amount of the Preferential Transfers, but not less than $109,015.00, together with prejudgment interest thereon at the legal rate allowed under 28 U.S.C. § 1961 from the date hereof;
c. Providing for an award of costs to the Debtors; and
d. Providing for such other and further relief as this Court may deem necessary and proper.
Respectfully submitted, this 11th day of September, 2007.
GREENBERG TRAURIG, LLP
/s/ James R. Sacca
James R. Sacca
Georgia Bar No. 621843
John D. Elrod
Georgia Bar No. 246604
3290 Northside Parkway, N.W.
Suite 400
Atlanta, GA 30327
(678) 553-2100
Counsel for Debtors
EXHIBIT A
(FREDERICK DAMRON)
Recipient Date of Transfer Method of Transfer Amount of Transfer
Frederick Damron September 2, 2006 E-Gold Withdrawal $250.00
Frederick Damron October 1, 2006 Check Withdrawal $27,800.00
Frederick Damron January 7, 2007 Check Withdrawal $7,500.00
Frederick Damron January 8, 2007 Check Withdrawal $18,000.00
Frederick Damron January 20, 2007 ACH Withdrawal $20,000.00
Frederick Damron January 26, 2007 ACH Withdrawal $28,000.00
Frederick Damron February 19, 2007 ACH Withdrawal $25,000.00
Frederick Damron February 26, 2007 ACH Withdrawal $18,000.00
Frederick Damron March 12, 2007 ACH Withdrawal $10,000.00
Frederick Damron March 12, 2007 E-Gold Withdrawal $7,350.00
Frederick Damron March 21, 2007 ACH Withdrawal $37,000.00
Frederick Damron March 21, 2007 E-Gold Withdrawal $725.00
Frederick Damron March 28, 2007 ACH Withdrawal $35,000.00
Frederick Damron March 28, 2007 E-Gold Withdrawal $544.00
Frederick Damron April 1, 2007 E-Gold Withdrawal $41,800.00
Frederick Damron April 5, 2007 E-Gold Withdrawal $7,500.00
Frederick Damron April 11, 2007 ACH Withdrawal $18,000.00
Frederick Damron April 14, 2007 E-Gold Withdrawal $12,000.00
Frederick Damron April 20, 2007 ACH Withdrawal $20,000.00
Frederick Damron April 28, 2007 ACH Withdrawal $16,000.00
Frederick Damron April 30, 2007 ACH Withdrawal $17,500.00
Frederick Damron May 1, 2007 ACH Withdrawal $5,550.00
Frederick Damron May 5, 2007 ACH Withdrawal $10,250.00
Frederick Damron May 12, 2007 ACH Withdrawal $45,000.00
Frederick Damron May 28, 2007 ACH Withdrawal $1,850.00
Frederick Damron May 31, 2007 ACH Withdrawal $1,690.00
Frederick Damron June 4, 2007 ACH Withdrawal $3,225.00
Frederick Damron June 6, 2007 ACH Withdrawal $1,550.00
Frederick Damron June 10, 2007 ACH Withdrawal $3,250.00
Frederick Damron June 12, 2007 ACH Withdrawal $1,585.00
Frederick Damron June 14, 2007 ACH Withdrawal $1,565.00
TOTAL : $443,484.00
EXHIBIT A PAGE 1 OF 1
